AMP Bank lifts interest rates beyond RBA rise

afr.com:

AMP Bank has become the first bank to increase interest rates for existing customers by more than the Reserve Bank of Australia’s latest cash rate rise, as it tries to turn around shrinking profit margins on home loans.

AMP Bank has aggressively undercut rival lenders on home loans in the past two years, as part of AMP’s strategy to grow its banking business to offset the long-term decline in its once-dominant wealth management arm.

AMP CEO Alexis George. 

Its loan reference rate increased by 0.25 of a percentage point in line with the RBA’s cash rate rise last week, for owner-occupier and investor home loans.

But it also reduced discounts from the reference rate by between 0.13 of a percentage point and 0.19 of a percentage point for some existing customers, according to mortgage brokers.

AMP told customers this week the decision was taken to “manage increased costs, current market conditions and a competitive landscape”.

The selective repricing for some mortgage customers surprised brokers and their home loan clients.

Bondi mortgage broker James Watson of FundingPro said mortgage customers had been notified by email about the reduction in discounts.

“It’s quite unusual to do this for existing customers and my clients are furious,” Mr Watson said. “AMP is trying to claw back margins.”

AMP’s loan contracts state that it can change the discount. But it is rare for existing customers to face a borrowing rate rise of more than the RBA’s cash rate increase, and it usually only happens when bank funding costs blow out such as times of stress in financial markets.

A spokesman for AMP said on Friday a small proportion of customers on “below-market interest rates” had received a discount adjustment, an average of 0.15 per cent,